Paradigm shifts to new economy
The Advocate, Wednesday December 1, 1993
Canadians as a whole need to be applauded for their conservative natures and savings habits. But, that is my point.
Conservative natures and saving habits. In today's modern world, these wonderful attributes are not enough.
Because of inflation and taxation, we cannot allow our conservative natures to settle for less than a 10 per cent return on our savings.
The next thing we must realize is that savings alone will not produce that kind of a return in conventional GICs over the long term. We have to enter the investment world and become investors as well - not just savers.
This brings me to my last point - habits.
We live in a global economy and need to look beyond our own borders. Our colonial thinking has to be expanded to include the whole world. Whether we like it or not, what happens in other parts of the worl affects us directly.
For example, we are losing our industrial manufacturing base. To prove this, do a brief inventory of the things you own. Does "Made in Hong Kong, Taiwan, Korea, Singapore, Japan, Thailand, " appear often?
I'm sure we can all agree that we cannot produce many of these items at home and compete economically. This has meant a significant loss of jobs in Canada and high unemployment. I don't have the answers to this, but I know we can protect ourselves by investing in diversified investments such as mutual funds that invest outside of Canada. This will increase our returns in two ways:
1. Since Canada represents approximately 3 per cent of the world's capitalization, investing in the other 97 per cent, our returns stand a better chance of increasing because of more opportunities.
2. The slide in the Canadian dollar is not over.
To protect against the devaluation of the Northern Peso, investments outside of Canada valued in stronger currencies wil enhance our returns in Canadian dollars. It is called currency management.
Only worldwide organizations with sophisticated techniques can keep abreast of the ongoing changes in currencies. One group who has well over 200 years experience in this area is the Rothchilds of Europe.
They have a complete range of mutual funds that employ this technique. There are other fund management companies that are also using new techniques such as hedging.
The real point of this article is that the old rules of saving and investing are no longer enough. Our minds have to open to allow the new technologies in money management and investing to enter in. We need to educate ourselves and employ these strategies if we want to survive economically in the 21st century.
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